Legislature(2001 - 2002)
03/20/2001 01:30 PM Senate L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 138-INSURANCE CODE AMENDMENTS
CHAIRMAN RANDY PHILLIPS called the Senate Labor & Commerce
Committee meeting to order at 1:30 pm and announced SB 138 to be up
for consideration.
MR. BOB LOHR, Director, Division of Insurance, said Gramm-Leach-
Bliley (GLBA) is the term for the Financial Service Modernization
Act of 1999, legislation that basically removed the barriers among
insurance, banking and securities. He explained that back in the
depression era, one of the responses of congress to 1929 depression
was to erect some walls among the different sectors of the economy
and have restrictions on cross-ownership, the Glass-Steagall Act.
Those barriers were broken down by this revolutionary legislation,
which repeals the Act.
Unlike other types of regulation, there's relatively little
involvement by the federal government in regulation of insurance,
MR. LOHR said. "We believe that is a very worthwhile goal to
preserve and continue. GLBA does provide that continued state
regulation of insurance will occur only if certain conditions are
met by the states in the way that they regulate insurance."
MR. LOHR said:
The primary goal of state regulators is to protect
insurance consumers, taking a pro-active and flexible
approach to regulation. State regulators must streamline
the processes and become more efficient in the highly
competitive world economic environment. If you are going
to allow insurance companies to compete with banks,
compete with securities firms, allow mergers and
acquisitions among those different categories, then if
any one sector is at a disadvantage because of the way
it's regulated in competing with those other sectors,
that's not a level playing field and that's not a fair
opportunity to compete. The goal of Gramm-Leach-Bliley
and the goal of the state legislation is to try to insure
that there is a level playing field there; that
regulatory restriction will not impair the ability to
compete openly and freely. State regulators must work
cooperatively with other state officials, federal
officials, consumers, and interested parties.
A primary goal of this legislation is to simplify the
process of licensing insurance producers, protect the
privacy of consumer information and to protect consumers
who buy insurance through banks.
Producer licensing - one of these restrictions that I
mentioned - If a total of 29 jurisdictions do not achieve
either uniformity or reciprocity for their non-resident
licensing process by three years from the adoption of
GLBA, then a national system of licensing will be put in
place. This essentially states we'll lose authority over
licensing to the national government. This is in response
to a perception by national companies that getting
licensed in every single state is a very cumbersome,
difficult process that involves different rules in
different states and is extremely slow.
NAIC refers to the National Association of Insurance
Commissioners. This is the gathering of the chief
regulators for insurance purposes from each of the
different jurisdictions around the country. It is our
national organization, which serves a quasi-governmental
function. It is because there is no federal insurance
regulatory entity, the NAIC is the closest thing to a
national perspective on insurance regulation that there
is. It's also complimented by the National Conference of
Insurance Legislators that has a national focus from the
point of view of legislators involved in the regulation
of insurance.
In October 2000, the NAIC adopted the Producer Licensing
Model Act for states to use as a guideline for developing
legislation to meet the reciprocity elements of GLBA. I
mentioned the two choices of either reciprocity or
uniformity that 29 jurisdictions have to achieve one or
the other of those. Reciprocity basically means that if
another state accepts a licensee as acceptable under
their rules, that we will accept them as a non-resident
license applicant under our rules and vice versa.
Uniformity, in essence, means that those states would
have the same conditions for licensing for an agent. It
would essentially be national legislation replicated in
each of the 50 jurisdictions. Alaskan licensee include a
total of over 10,700 of which 2,900 are residents, 7,800
are non-residents. We have noticed a dramatic growth in
the non-resident licensees in the last three years and
pretty much a level trend for the purposes of the
resident licensees - 38 percent increase.
Based on the NAIC model with the goal of achieving
reciprocity and moving toward uniformity later, these
licensing provisions in SB 138 would give licenses on a
reciprocal basis. A non-resident applicant would receive
a license upon request for licensure and payment of a
fee. The fees would be collected at one central point
nationally and the applications would be turned in
nationally, but processed electronically, if a producer
is licensed and in good standing in the home state.
Basically, we envision a system where an applicant for a
license in Alaska, if there are no regulatory issues,
such as previous administrative or criminal background,
could be processed within a 24-hour period. That would be
a dramatic change from the current system. We would
accept the home state's continuing education requirement
as they would accept ours. Any retaliatory provisions
that Alaska might apply to others would be eliminated by
this bill. It would remove all discriminatory
requirements based on the place of residency or
operations. We would use and accept the National Uniform
License Application.
A consistent approach on a national basis would truly
simplify the task of getting multiple licenses. Some of
the benefits of enacting the producer licensing
provisions would include:
· Streamlining the license process and eliminating
duplicative requirements for licensure.
· It would be a more efficient and a cheaper
process.
· There would be no requirement to apply retaliatory
fees
· We would level the playing field
· We would work collaboratively to identify rogue agents.
If one state was able to identify problems in the
background of a licensee, other states would have access
to that information on a confidential basis.
Number 700
SENATOR AUSTERMAN asked if there was no federal oversight or
regulation of the insurance agency.
MR. LOHR answered that is basically correct. At the federal level
there is the McCaren Ferguson Act, which provides that if states
are regulating the business of insurance, then insurance companies
are protected from the anti-trust provisions in federal law. This
was in response to a U.S. Supreme Court case. It is truly a state's
rights or state regulated business.
SENATOR AUSTERMAN asked if GLBA allows everyone to come together
and do a national standards of insurance.
MR. LOHR answered that was correct and that they are trying to get
closer to a national approach so that companies doing business on a
multi national basis will not face the quirks and warts of all the
different systems.
SENATOR AUSTERMAN asked if the national approach was based upon
state laws or insurance standards as well.
MR. LOHR answered that it is based typically on model legislation
and regulations developed by the NAIC that takes input from
interested parties. He said there are privacy provisions in this
bill and he referred to the Alaska Constitutional Right to Privacy,
Article 1, Section 22 which states, "The right of the people to
privacy is recognized and shall not be infringed. The legislature
shall implement this section." This is a more stringent privacy
standard than is found in the U.S. Constitution.
The consumer privacy provisions of this bill confirm the
Director of Insurance's authority to adopt privacy
standards that are consistent with, but no less
restrictive than the NAIC model regulation.
MR. LOHR summarized information that is protected in the NAIC
Privacy Model:
· Personally identifiable financial or health information
· Has standards for protected financial information that are
consistent with Gramm-Leach-Bliley Act and they are opt-out
provisions. Opt-put means if you don't want to share your non-
public personal information with insurance companies with
other companies, then you must tell them you don't want to
share. That means if you don't exercise your option to opt-out
in the little billing stuffers, you are giving them the right
to share that information. That is a lower form of protection
for that information than opt-in. Opt-in information means
that the company may not share that information with other
companies except affiliates unless you give them permission to
do so. Opt-in is a tighter form of control with respect to
protecting privacy.
MR. LOHR said the current proposal is that health information be
protected on an opt-in basis.
MR. LOHR reiterated:
· Opt-out standard means that insurers may share
protected financial information unless the consumer
affirmatively says they do not want the information
shared.
· Insurers must provide notices to consumer describing
their privacy policies.
· Protected financial information may be shared among
affiliates without restriction.
MR. LOHR explained the opt-in standard means insurance companies:
· May not share protected health information without
explicit permission from the consumer.
· Exceptions to this standard allow insurers to perform
day-to-day operations.
· Unlike the financial standards, insurers are not
required to provide notices describing their privacy
policies.
MR. LOHR said the health information standards do not apply to
insurers who are in compliance with the newly developed U.S.
Department of Health and Human Services regulations, which
implement the Health Insurance Portability and Accountability Act
(HIPAA) taking effect in 2002. Sharing among both affiliates and
non-affiliates is restricted. He explained if you don't want
insurance companies making decisions about whether to write
insurance for you based on your health history and prescriptions
you may have taken, these are important provisions.
MR. LOHR said it's important to have strong privacy standards for
health insurance and the Gramm-Leach-Bliley standard is geared
toward banks and securities firms, not the insurance industry.
There is a much larger volume of health information and greater
sensitivity. There is a greater sharing of information among banks,
securities firms and insurance companies who are now allowed to
affiliate. Reasons in support of the NAIC Privacy Model include:
· Preserves the insurance industry's ability to transact
insurance while protecting consumers.
· Broad support from industry, consumer groups and others,
although there are diverging points of view on the privacy
issue.
· Makes a strong statement that state regulation of insurance
can work effectively to protect consumers while allowing the
insurance industry to remain competitive in a changing
financial services marketplace.
Number 1200
MR. LOHR said consumer protections in financial institutions' sales
of insurance are consistent with Sections 104 (often referred to as
the 13 safe harbors) and 305 of GLBA. SB 138 expands applicability
beyond depository institutions as provided in GLBA to all financial
institutions that may transact insurance business in Alaska.
There are four major areas of protection relating to
licensing, misrepresentations, disclosure, anti-tying and
anti-coercion. There are two other GLBA related
provisions. One requires that a person with a felony
conviction involving dishonesty or a breach of trust
obtain consent of the director before transacting
insurance as required by a provision in the Federal
Violent Crime Control Act, Section 1033, Title 18 USC
1033 and 1034. Basically the federal government says that
anyone engaged in the business of insurance, certainly a
licensee, but also anyone working in an insurance office
who has been convicted of a felony involving dishonesty,
cannot work in the business of insurance without approval
of the state insurance regulator.
MR. LOHR said that currently the federal government has much better
information in its criminal data basis than is readily available to
states. States do not have access to the FBI data base that
includes non-criminal information on applicants, because our state
laws are not consistent with the requirements that the FBI and U.S.
Department of Justice. This bill includes language that conforms to
those federal requirements and would give us direct access to those
data bases. "This would really enhance law enforcement in the
business of insurance in Alaska."
MR. LOHR said it also removes barriers in current law to allow for
electronic submissions.
Number 1500
MS. PATRICIA PARACHINI, Senior Director, American Council of Life
Insurers (ACLI), said they have 275 member companies who do
business in Alaska out of 426. They account for 97 percent of the
life insurance and 85 percent of the annuity business in Alaska.
MS. PARACHINI said that they are very supportive of the general
intent of SB 138, particularly in the areas of producer licensing
and privacy. "Compliance with GLBA is very important to us, as is
uniformity in this area. Our competitors who are regulated by
federal entities have one regulator to issue rules to them. We have
a more difficult time with 50, so uniformity becomes critical.
She said it is their view that state regulators are not required to
do anything by GLBA where federal regulators are. She said:
There are two areas in which, if the states do not act,
their authority may be preempted by federal regulators.
One area has to do with internal data security
requirements to try to avoid hacking. This is an area
that is not addressed in SB 138. The NACI have not looked
at this area.
MS. PARACHINI said the second area that is addressed in SB 138 is
if a majority of states fail to achieve either uniform standards
for producer licensing or reciprocity among states for non-resident
applicants by November 2002, then the National Association of
registered Agents and Brokers (NARAB) would be created. It would
issue non-resident licenses to applicants, which the states would
be forced to honor. They, therefore, encourage the adoption of the
first part of the bill.
Their three areas of concern are:
In producer licensing, which is based on the NAIC Model.
We're very supportive of this section. The way that
Alaska adopted this model was to retain a lot of current
law and go ahead and adopt pieces of the model and that's
an absolutely fine way to do it. In our view there are a
couple of areas that, from the model, we weren't sure
were picked up when this was drafted and we were having
very productive discussions with Linda Brunette at the
Division about that. It's our view that they would like
to see three areas of the model put into the statute.
The second area on privacy where, in fact, the industry
asked the NAIC to do a model on financial and health
privacy. The ACLI worked very hard with NAIC to adopt
this and we, in fact, support this model. We support both
the financial and health information provisions. The only
concern we have really with the way part of the statute
is drafted is that it says that, "Alaska's privacy
regulations must be consistent with, but no less
restrictive than, the NAIC model." To us that means you
can go beyond the NAIC model. We would rather see that
word "less" be changed to "more" because the model should
be the ceiling, because it's a very conservative model
the way it is. That would be the only change we would ask
for.
The final section of consumer protection is regarding
insurance sales by banks. We have a difference of opinion
with the division and with the NAIC, in fact, on whether
there's really any need for a state to adopt these
consumer protections, because if banks sell insurance,
they are required to meet all the laws and regulations
that insurance companies currently meet and we think
there are already provisions in the code for this.
However, if Alaska would like to adopt these provisions,
what we respectfully ask is that the NAIC, which is
meeting next weekend, is currently drafting amendments to
their Unfair Trade Practices Act. The Alaska wording in
front of you is an older version. The NAIC has since
changed the version to different language, which does
address some of the industry's concern.
My understanding is that after next weekend, they will
have close to a final amendment to that model and we
would prefer that Alaska wait, if you have the time,
until that's done so that there is uniformity. Otherwise,
Alaska will be the only state that is putting these into
statute this year. It would be out of sinc with the rest
of the nation, uniformity being very important to us
here.
MS. PARACHINI said she looked forward to working with the committee
on some of these concerns.
SENATOR AUSTERMAN asked her to comment more on the opt-in/out
issue.
MR. MICHAEL LOVENDUSKY, Senior Counsel, ACLI, responded:
The previous comment that opt-in provides greater
consumer protection is something of the mythology that
goes along with the discussion, but it's never been
empirically demonstrated that that's true. In any of
these privacy regulatory schemes, there balancing that
has to be undertaken with regard to the degree of
protection that will be awarded to consumers with the
legitimate business uses of information. What has to be
discussed and looked at is not so much what is opt-in or
opt-put, but what the exceptions are to either the opt-in
or opt-out statute or regulations that allows the
transfer of information among businesses. And so the
environment that is imagined by the federal law, Title 5
of the GLBA, carefully weighs the benefits of the opt-out
approach of information sharing with a variety of
business exceptions for the permissive exchange of
information among both affiliated entities and non-
affiliated third parties. To come up with a plan that
satisfies congress would be a good plan for all financial
service sectors, both federally regulated as well as
state regulated. It is the achievement of a coherent
national plan that will achieve for all Americans the
first systematic protection of their privacy right. This
is one of the reasons why we are so supportive of the
model regulation development by the NAIC and ACLI and
other interested parties for the states.
SENATOR AUSTERMAN asked if the national standards are opt-out, is
everyone opt-out?
MR. LOVENDUSKY answered yes.
The goal of Title 5 is to have an opt-out environment for
the exchange of information. The seldom discussed
elements of Title 5 are: the requirement that every
financial institution for the first time will have to
have a privacy policy and: secondly, they will have to
disclose those privacy policies to all consumers, not
just at the first time of their relationship, but
annually thereafter, once the consumer becomes a
financial institution's customer. These are the two most
important changes in this law. Financial institutions
know who knows what about whom and what can be done with
that information to deliver better products and
information to American consumers in the responsible way.
SENATOR AUSTERMAN said he could argue just the opposite of that. We
could set standards saying that the government is responsible
rather than the industry being responsible.
MR. LOVENDUSKY responded that either way they would still have to
look at what the business exceptions for the use of information
are, whether it's for opt-in or opt-out. "When you think of the
billions of information transactions that occur every year in the
United States for many years already, and compare that to the
number of problems that have actually arisen, the problems are
really very small, while the benefits that have arisen from these
kinds of information transfers have been tremendous. It's been a
responsible use of information by and large by American financial
institutions. Title 5 of the federal law recognized that in
fashioning and accepting the opt-out regime and balancing it with a
variety of business exceptions for use."
SENATOR AUSTERMAN asked if it totally excludes opt-in.
MR. LOVENDUSKY answered that it doesn't exclude opt-in, except in
two respects.
One is that there is a provision of federal law that
permits states that have more protective regimes on the
books to exist so long as they work within the Title 5
scheme. The second aspect is something that was
bequeathed to the insurance industry from the federal
regulators and that was that federal regulators, on their
own initiative, decided to expand their interpretation of
non-public personal information under the federal statute
to include health information. That was a relatively easy
thing to do for the banks and their federally regulated
entities because they don't have a lot of health
information, but insurers do have a lot of health
information. So when the issue was presented to the state
regulators at the National Association of Insurance
Commissioners, there was a large contention that is still
going on today about whether health insurance should be
proactively addressed by the NAIC model regulation. It
was decided that it would be. Then, if it was to be
addressed, whether it would be addressed on an opt-in or
an opt-out basis. The model regulation addresses the
disclosure of health information on an opt-in basis,
which is, in fact, a continuation of many policies in
many states with regard to treatment of medical record
information and health information. The ACLI is
supportive of the approach of the NAIC model with regard
to health information and so that is a second area that
has evolved from the Title 5 interpretation by the
federal banks and regulators that is not opt-out based.
Number 2000
MR. MICHAEL HARROLD, Northwest Regional Manager, National
Association of Independent Insurers, said in terms of producer
licensing that they are committed to preserving state insurance
regulation and this is an important component of that. They are
especially appreciative that they have the customer service
representative exemption in there which allows CSRs to service
existing policy holders with questions on existing policies.
MR. HARROLD said they are concerned with the privacy language in
the bill and think it's important to try to have the regulations in
the state as close as possible to GLBA to keep the playing field as
level as possible, particularly when you get into the health
privacy aspect. He said that companies could become very confused
about how to respond to this. "Property and casualty insurers do
not have to comply with HSS rules per se, but they do have
interactions with a number of others who do. We think holding off
on that and waiting for the federal rules to be promulgated and to
let them settle a little bit might be more helpful as far as
letting states know how they may best proceed from that point on.
MR. HARROLD said the final area is in Sections 49 and 59 that
involve the victims of domestic violence. It's not clear exactly
what the division is trying to do and they are looking forward to
hearing more on that issue.
MS. CINDA SMITH, Government Employees Insurance Company, said they
support language in section 2, which allows employees of an insurer
to respond to a request from a simple policy holder for existing
policies without the necessity of a license.
We feel the language simply recognizes the way the
insurers conduct their business now. Insurers presently
use consumer representatives, CSRs, to respond to phone
calls or other enquiries made by existing policy holders
when they call to implement changes on their existing
policy. These people do not sell new policies [indisc.]
or contact people who are not policy holders by making
cold calls. They implement such changes as adding or
deleting a vehicle or adding a collision coverage or
comprehensive coverage when a new company replaces a
clunker. The reason we think this is important is because
now, with a computer, a customer is able to make changes
to his or her insurance policy at any hour of the day or
night, seven days a week. They can do that without
interaction with a licensed agent. The convenience of
this has raised consumer's expectations to a new level.
They want to be able to conduct their business by
computer, by telephone or in person about 24 hours a day,
seven days a week. The use of CSRs allows insurers to
provide the level of service at a minimum cost. We simply
want to be able to allow by telephone or person what you
can already do over the Internet.
Maintaining this language allows insurers to continue to
modernize the marketplace, maintain a more low cost
insurance environment and keep the ease and convenience
that consumers have come to expect. SB 138 clarifies the
permissible activities of CSRs and sets the uniform
standards for regulators.
MR. MICHAEL COMBS, President, Combs Insurance Agency, Alaska
Independent Insurance Agents, said they have no opposition to the
bill as presented.
TAPE 01-12, SIDE B
MR. JOHN GEORGE, American Council of Life Insurance, National
Association of Independent Insurers, said his organization had
already testified and he would be available to answer questions.
MR. SHELDON WINTERS, State Farm Insurance Co., asked that they be
given time to work with the division before the bill is passed. He
thought there would be positive comments.
SENATOR AUSTERMAN said he has a couple of inherent problems with
talking about federal laws that create national standards that
don't have any federal regulation to control them. He needs to know
how the final decisions are made on national standards and how that
affects what is passed in Alaska. He also wanted to know more about
the National Insurance Commissioners Association - who they are,
how they're appointed and what control they have, etc. He also has
concerns with the opt-out provision. "I think if we do something
like this, it's the industry's responsibility to make sure the
customer is protected, rather than the customer having to make sure
he protects himself from the industry."
Number 2249
SENATOR PHILLIPS asked how the governor, who introduced the bill,
circulated the bill prior to introduction.
MR. LOHR answered that the Division drafted the bill, submitted it
to the Department of Law for legal review and circulated copies of
the work draft of the bill to the known interest groups. They tried
to provide to Mr. George, insurance industry, the interest and
focus groups. They did not distribute the bill to consumers as it
is harder to identify who the groups would be for that type of
distribution. He said that he had discussed privacy provisions with
Mr. Conn.
SENATOR PHILLIPS asked what anti-tying was.
MS. KATIE CAMPBELL, State Actuary, explained that it is tying
insurance to a financial transaction. "So if you go in to get a
loan and they're saying no, you can't get the loan unless you buy
insurance from us."
MR. LOHR added that the National Association of Insurance
Commissioners consists of the chief insurance regulator in each of
the 50 states, the territories and the District of Columbia;
typically those are at the department level, like the commissioner
of Insurance. "We review draft regulations, draft statutes, model
statutes, that are prepared by staff based on consensuses developed
from different states of approaches. For example, there's a model
act for consumer protection; there's a model act that deals with
the privacy provisions. Those are developed according to extensive
testimony from members of the public, from funded consumer
representation, to that national group from insurance companies.
There's active participation by insurance companies in those
provisions and they truly do represent a consensus of what the best
form of regulation of the industry is. Typically, with witnesses
that diverse, there's a very balanced approach there. There's a
very middle ground approach toward trying to get insurance
regulations and statutes that are both workable and going to
provide solid consumer protection. There's a very extensive hearing
process. Some of those regulations and bills take literally years
to develop until a consensus is achieved. Then they are made
available to states as possible models for state legislation."
SENATOR AUSTERMAN asked if that means the commissioners agreed with
the federal legislation that the opt-out provision is better than
the opt-in for consumers.
MR. LOHR answered:
For purposes of financial information held by insurance
companies, the commissioners did agree that that was the
best approach. That doesn't mean that would necessarily
be the best approach for financial information held by
banks, for example. You could get a very different answer
in that regard. One of the reasons we recommended the
language in SB 138 is to establish a floor rather than a
ceiling using the NAIC model precisely to address the
reality that Alaskan's concerns about privacy typically
are far more focused and developed than they may be
elsewhere in the country. That's why we didn't want to
have something that would set a ceiling using the
national model. We felt like at a minimum, there needs to
be a floor there. The federal law, fairly uniquely in
this area, does provide that if state laws are more
protective of privacy than the federal regulations
adopted on this subject, the state laws will be upheld.
They will not be preempted by federal law. If there is a
debate about whether a state provision is more protective
of privacy than a federal regulation, the Federal Trade
Commission actually sits as a court and decides which
provision is more protective. So by having a floor there,
we do believe it allows the NAIC model regs as a starting
point for public promulgation as a proposed regulation,
taking public comment on that, making sure there's ample
consumer participation as well as interested party
insurance industry participation in that discussion and
debate; and development of a good solid set of privacy
regulations.
CHAIRMAN PHILLIPS asked if anyone had any final comments and said
he wanted to bring this bill up again next week. There were no
further comments and he adjourned the meeting at 2:30 pm.
| Document Name | Date/Time | Subjects |
|---|